Momentum runs high in markets as Nifty looks set to hit 19,111 soon, says Ashish Kyal

Elliott Wave analysis:

The Nifty path ahead, as shown in Nifty hourly chart, rise from the lows of 16,828 is in impulse pattern that consists of five waves. There is extension in wave 5. Prices are also moving in red channel and currently wave (v) of 5 ongoing. As per this, Nifty can hit lifetime highs above 18,887 levels and eventually move to the levels of 19,111. This is where wave v is 61.8 percent of wave (iii).

Wave personality suggests that wave (v) is usually associated with slower momentum and we can see the same on the above chart where RSI (relative strength index) is making lower highs with prices making higher highs.

It is prudent to avoid catching a top unless we see close below prior week’s low which is near 18.530 over short term. For nearly 12 weeks, there is not a single close below prior weekly low on index and so it is still buy on dips. Many are trying to catch a top here as the momentum is slower but do remember that prices can continue to rise with slower momentum unless price action confirms.

Bank Nifty hourly chart

Bank Nifty Elliott wave analysis – suggests that prices are moving higher in form of 5 waves and currently wave 5 is just starting. The fall on June 15 just trapped the bears and now move above 44,100 will extend this rally towards 44,700 levels where wave 5 will be equal to wave 1. It seems more steam is left in this index as well with support at 43,300 levels.

Advance Decline line

Advance decline (AD) line represents the cumulative effect of number of stocks advancing to that of the declining. We can see that during the current ride AD line has improved (red line rising). This suggest that participation has seen from broader markets which is a healthy sign. This improvement in AD line was not seen during earlier rise of 2022. This is also reflected in the BSE Small cap index that has been strongly outperforming in the current rise.

BSE Small cap index

As shown, BSE Smallcap index has already touched lifetime high levels breaking out above inverted Head and Shoulder pattern. This is acting as a continuation pattern instead of reversal since ideally an inverted Head & Shoulder pattern should form after a sustained down move. Nevertheless, this is a positive breakout as long as BSE Small cap index stays above 28,000 levels.

From Elliott wave perspective, BSE Smallcap index is possibly moving up in form of wave 3 and it is best to stay in this sector since the rise is strong. Wave 3 is usually the strongest wave and smallcap sector is leading it on upside.

In a nutshell, more steam is left in markets over short term as long as 18,530 level remains protected. Many are trying to catch a top without any price action confirmation just seeing slower momentum which can be disastrous.

Overall, breadth of market is improving with participation from smallcap sector. Use dips to keep riding this trend as long as 18,530 is intact for a possible move to lifetime highs near 18,890 followed by 19,111 levels.

In research column in May 2023, it was mentioned that Bank Nifty will touch lifetime highs in May and Nifty will touch lifetime highs in June, prices behaved precisely as per the Elliott wave pattern.

Follow Ashish Kyal on Twitter - @kyalashish

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